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Superintendent Jose Fernandez was going through his second bankruptcy and had lost his family home when the Centinela Valley Union High School District threw him a golden lifeline in 2012 — a $910,000 home loan with no down payment to be repaid at 2 percent interest over 40 years.

The loan terms are exceptional to anyone with excellent credit. They are unheard of for someone who has just gone through bankruptcy, mortgage experts say. And they will save Fernandez at least $100,000.

“That is like a dream come true for anyone trying to get a mortgage. Nobody gets a mortgage like that, even with perfect credit,” said Brad Levin, president of Legacy Wealth Partners in Woodland Hills. “For someone in bankruptcy, it is an impossible situation.”

While ideal for Fernandez, the loan came at one of the worst times for the tiny district centered in Hawthorne and Lawndale, according to Sandra Goins, executive director of South Bay United Teachers, the umbrella union for teachers in the Centinela Valley Union High School District, Redondo Beach, Manhattan Beach and Palos Verdes Peninsula school districts.

“At the same time they were giving this loan, they were laying off teachers, closing down programs at the adult school. ... $1 million to the district is a lot. That is 25 percent of the entire books and supplies budget this year,” Goins said.

“Besides that, the school district shouldn’t be in the business of holding mortgages. It is not a corporation. The main focus is educating students, not lending money.”

But Fernandez, in his first comments to the Los Angeles News Group since his lucrative compensation package was revealed in a Feb. 9 article, contended the loan is nothing extraordinary.

“This is something that exists in the world of senior managers,” he said.

Fernandez wouldn’t comment on the compensation controversy, except to say his contract, including the loan provision, is modeled after a template provided by the Association of California School Administrators.

“I have seen many places where they have done that,” he said.

But experts say lending a current superintendent money to buy a home is unusual.

“When you have someone coming from out of state and who can’t afford the high prices of California, you might lend them money to buy a house to attract them,” said government watchdog Bob Stern, former president of the Center for Governmental Studies. “But it is definitely unusual when you have an existing superintendent and you give him a loan.”

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Wendell Chun, executive director of the superintendent search firm Education Leadership Service, said of the 50 searches he has been involved in, he has never seen a superintendent offered a home loan.

“It happens, sometimes, but mostly in larger districts in very expensive neighborhoods,” he said.

Centinela Valley Union High has just 6,600 students in three comprehensive high schools. And its median home values are below that of Los Angeles County as a whole.

Bankruptcy burden

Most people in Fernandez’s circumstances would not be able to secure any kind of home loan.

He and his wife filed Chapter 7 bankruptcy in June 2010. Fernandez also filed Chapter 7 bankruptcy in 1994. According to the 2010 filing, the couple had accumulated $3 million in debt — more than twice the value of their assets.

Much of the debt came from a family business owned by Fernandez and his wife, Miller Distributing Group, a wholesale supplier for bakeries and food manufacturers.

Fernandez said he was a casualty of the recession and a bad business decision.

“Like many Americans, my family went through a real tough time after the economic crisis,” he said. “We had close to $15 million a year in sales, but when the economy collapsed, the credit lines from our suppliers dried up and a lot of our customers went under.”

“One of the greatest mistakes I’ve made in my life was to personally guarantee the obligations of the business,” he continued. “Declaring bankruptcy was a calculated business decision to protect the family from this mountain of debt the business had acquired.”

The family also was living beyond its means — spending $17,000 a month while Fernandez’s job as superintendent brought in $13,000 monthly, after taxes and other withholdings, according to the bankruptcy filing. And they had $17,000 in credit card debt.

The bankruptcy largely relieved them of $1.5 million in corporate debt, as well as other debt. But the family gave up its home in the process.

Two months before the bankruptcy process was even complete, in December 2012, the district lent Fernandez and his wife $910,000 and they purchased a new home 1½ miles from their previous one in Ladera Heights, according to property tax records and loan documents provided by the district.

The Fernandez family never would have been able to gain financing so soon after bankruptcy otherwise, according to Steve Murillo, owner of First Manhattan Mortgage and Realtors in Manhattan Beach.

“That would kill a conventional loan,” he said.

The district, Goins contends, should have had the same concerns as a bank.

“A 40-year loan for someone who has already been bankrupt twice — anyone who would lend money like that should be concerned about whether they can recoup their money,” she said.

Under his loan with the district Fernandez’s monthly payment would be $2,756 for 40 years. Those terms save him more than $100,000 over the life of the loan compared to what he would have paid under a conventional loan, even if he had excellent credit. (With great credit, a 2012 borrower might have paid 20 percent down and 3.5 to 4 percent interest over 30 years.)

“How is it possible for CVUHSD to receive taxpayer money intended for the education of children and then use some of it to make a loan to an employee for 40 years at 2 percent interest? How is that an education activity or function?” asked Bruce Zentil, former Director of the Division of School Financial Services with the Los Angeles County Office of Education.

“There is also the board of education to consider,” he continued. “These are elected officials. They have fiduciary responsibilities. This loan was made in December 2012. At that time Jose Fernandez was in involved in his second bankruptcy. ... Does that pass muster as proper fiduciary oversight by elected officials over taxpayer dollars?”

Fernandez said his family was “very conscientious” about the loan.

“We did not abuse anything,” he said. “We could have gotten a home in Laguna Beach or Brentwood. We picked a place very close to the district, composed of people similar to people we serve in the district.”

Ladera Heights, however, boasts a median household income of $103,000, while the communities making up the Centinela Valley Union High School District range from $33,000 to $49,000 in median household income.

Goins said Fernandez’s experience is nothing like what the residents of Lennox, Hawthorne and Lawndale endure.

“I think it is obscene,” she said. “This is a working-class community and most people in this community couldn’t obtain a loan like that. … Fernandez should be able to find financing for himself. Like every other American who has declared bankruptcy — you deal with it,” she said.

Better returns possible

Fernandez said the district settled on 2 percent interest because that is the rate of return it would have received from the county treasury.

But Levin compared investing in a high-risk mortgage, like that of Fernandez, to investing in a sub-prime mortgage-backed security, which would bring a yield of around 6 percent — resulting in $1 million more for the district.

“I’m not saying it is a suitable risk for the district, but in terms of the risk you are taking on, it is comparable,” he said.

Goins said the district should have used the money for student needs at a time when it was struggling financially.

The same year it gave Fernandez the loan, the school board laid off 46 teachers and cut its adult education program. It also cut spending on books and supplies to $1.5 million — nearly $700,000 less than the previous year and less than half what it is most years.

The funds could have provided valuable bridge money to help the district stay above water while waiting for relief from Proposition 30, the tax hike initiative approved by California voters in 2012 that helped shore up education funding.

“Why would a school district that has concerns about finances hand out a $1 million loan?” Goins asked. “It just doesn’t make sense.”